Civil Fraud Quarterly Round-Up: Q1 2021
Bilta (UK) Ltd & Ors v Royal Bank of Scotland Plc & Anor  EWHC 3535 (Ch) involved a claim against RBS for alleged fraudulent trading in connection with VAT fraud.
In March 2012, HMRC wrote to RBS stating that they had sufficient grounds to deny RBS’s VAT reclaim in relation to certain carbon credit trades on the basis that RBS ‘knew or ought to have known’ that the trades were connected with fraud. RBS appointed solicitors to conduct an investigation into the circumstances surrounding the trades. This resulted in a report in response to HMRC’s letter that argued, amongst other things, that RBS did not know that the trades were connected with fraud.
The documents created in that investigation included transcripts of 29 interviews with RBS key employees and ex-employees. The claimants sought disclosure of those documents pursuant to CPR Pt 31. RBS resisted disclosure on the basis that the documents were subject to litigation privilege.
In order for RBS to succeed in its claim to privilege, it had to meet the Three Rivers criteria (established in Three Rivers District Council v Governor & Company of the Bank of England (No 6)  1 AC 610):
The claimants accepted that the first and third conditions applied, and so the case centred on whether RBS, bearing the burden of proof, was able to establish that the documents had been produced for the sole or dominant purpose of litigation, ie the threatened assessment by HMRC.
The claimants placed considerable reliance on the controversial decision in SFO v ENRC  EWHC 1017. This was a civil claim where the Serious Fraud Office (SFO) successfully challenged Eurasian Natural Resources Corporation (ENRC)’s claim to privilege over documents shared between ENRC and its former law firm during an internal investigation into alleged criminal activity. The investigation was carried out in an attempt to dissuade the SFO from commencing proceedings, and therefore it was said that the investigation did not have a ‘litigation purpose’. In Bilta, the claimants argued that RBS was in a similar position to ENRC, since it intended to share its report with HMRC in the hope of persuading it not to pursue an assessment.
The claimants also argued that the investigation was conducted for multiple different purposes, including for internal compliance reasons and to maintain a good relationship with HMRC.
Litigation privilege applied to the documents.
Vos LJ held that following HMRC’s letter in March 2012 it was highly likely that an assessment by HMRC would follow. In his view it was unlikely that RBS would persuade HMRC to drop the claim against them altogether in circumstances where HMRC had already said that it had evidence supporting its case. He said that ‘fending off the assessment was just part of the continuum that formed the road to the litigation that was considered, rightly, as it turned out, to be almost inevitable’. All other purposes of creating the report and holding the interviews were ‘effectively subsumed under the purpose of defeating the expected assessment’.
Vos LJ did not consider ENRC to be determinative in Bilta partly because, in his view, there was ‘something of a tension’ between ENRC and the Court of Appeal’s decision in Re Highgrade Traders  BCLC 151, in which the Court found that investigating the facts and enabling advice to be given in relation to litigation both formed part of a single purpose. Interestingly, Re Highgate Traders was not referred to in the ENRC judgment and Vos LJ commented that the decision did not appear to have been directly cited to the judge in ENRC. However, lawyers who acted in ENRC have confirmed that Re Highgrade Traders was cited to the judge, who took a plainly different approach to the one adopted by Vos LJ here.
The ENRC decision meant that documents created during the course of an investigation might be subject to disclosure during subsequent litigation. It attracted negative commentary, not least because parties and their lawyers felt that it limited their ability to conduct necessary factual enquiries. Commentators also raised concerns that it could deter companies from self-reporting in the future.
The decision in Bilta confirms that litigation privilege can apply to investigations in the right circumstances:
This decision should encourage those who want to see a return to a more generous interpretation of litigation privilege than the decision in ENRC. The Court of Appeal will hear the appeal in ENRC later this year and we await that judgment with interest. However, the issue of privilege will remain critical and will largely depend on the circumstances of each case. Parties and their legal advisers must be alive to the potential risks and ensure careful attention throughout internal investigations.
Richard Foss is a partner at Kingsley Napley LLP & committee member of the London Solicitors Litigation Association. Hannah Fitzwilliam is an associate at Kingsley Napley LLP & a member of the Junior London Solicitors Litigation Association.
This blog first appeared in the New Law Journal on 21 February 2018.
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